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Is a Market Correction Underway? Market Commentary from Cabana’s CEO – September 20, 2021

3 years ago

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Well, the much anticipated market correction appears to be underway. We have recently touched on the numerous factors coming together at once as a catalyst for an inevitable pullback. The one which we did not see coming is the potential collapse of a really huge Chinese real estate company named Evergrande. It seems to be grand all right. Mainly in how much debt it has. Three-hundred billion US dollars worth! The rumor is that the company is about to default, which could result in a Lehman Brothers type cascade of collateral damage to lots of large banks and other institutional investors. This news hit late last week and may be the metaphorical straw that broke the camel’s back (or the unstoppable bull in our case).  

What started as a slow week after week decline at the beginning of the month has turned into a downright avalanche today. As of this writing the broad US indices are down more than two percent and that is after bouncing off their lows at closer to three percent. The S&P 500 is down 4.5% since September began and is now trading below its 50-day moving average. More importantly, it is holding below that important technical level of support. Every other time we have seen the 50-day MA this year get touched or breached, buyers have stepped in and reclaimed the higher ground. The fact that we are not now seeing the same activity gives weight to the possibility that we have further room to fall. We are currently testing the 100-day MA at 432 (SPY). If that does not hold the ALL IMPORTANT 200 MA sits at 410. A drop to the 200-day MA would represent a correction of almost 10%. While nobody likes to see account values drop, a 10% pullback seems heathy given the unabated run we have had over the past 10 months. Let us not forget that taking a step back can be a healthy part of any bull market. It allows for new money to come in and rotation into undervalued sectors.  

The news will likely be full of all sorts of doomsday predictions concerning all our political struggles, the omnipresent COVID -19 infections and now the Chinese financial crisis. I for one will follow what I believe really matters to stock prices and that is earnings. For now, they are growing and so long as that continues, we will remain in a bull market. Corrections are just part of it and to be expected.  

Disclaimers

January 17, 2024

This material is prepared by Cabana LLC, dba Cabana Asset Management and/or its affiliates (together “Cabana”) for informational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. This material may only be distributed in its original format and may not be altered or reproduced without the prior written consent of Cabana. The opinions expressed reflect the judgement of the author, are as of the date of its publication and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by Cabana to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Cabana, its officers, employees or agents.  

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All indices and categories are unmanaged and an individual cannot invest directly in an index or category. Index returns do not include fees or expenses. Benchmark indices will likely materially differ from Cabana’s portfolio strategies. Detailed information as to how the returns are calculated can be obtained online from the following link: https://thecabanagroup.com/disclaimers/performance-reporting-methodology/. 

Morningstar’s Moderate Target Risk index  follows a moderate equity risk preference and is based on well-established asset allocation methodology from Ibbotson Associates, a Morningstar company.  

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The Nasdaq Composite Index is a market-weight capitalization index that covers more than 3,000 stocks listed on the Nasdaq Stock Market. What is the Nasdaq Composite, and What Companies are in It? | Nasdaq